Sezzle Inc. Q3 FY2024 earnings call

• Launch of partnership with WebBank has simplified the business, standardized regulatory procedures nationally, and aided profitability. - Introduction of On-Demand product, a Pay-in-4 allowing use anywhere Visa is accepted, expected to increase consumer activations with 30% higher rate of user activation into monetized programs. - Marketing efforts such as the Timberwolves jersey patch sponsorship to boost brand awareness. - Underwriting with proprietary prophet models showing no degradation in credit risk for loyal customers who have made more than 10 orders, with charge-off performance appropriately sloped by risk deciles.

Sezzle's third quarter revenue rose 71.3% year-over-year. Subscriber count reached 529,000 at the end of the third quarter, an increase of 67,000 from the previous quarter. Adjusted net income was $17.3 million, with an adjusted net income margin of 24.7%. Revenue growth was driven by a 41% increase in UMS and a 167% rise in subscription revenue. Unit economic margin was 55% of total revenue, up from 49.2% in the prior year.

• Updated guidance includes impact of WebBank partnership. - Raised 2024 guidance due to stronger-than-anticipated results and WebBank partnership. - Provided 2025 adjusted EPS guidance, expecting over 20% growth post-tax despite a roughly 20% tax headwind in 2025.

• Seasonality in business, with retail-linked nature and potential for spending fluctuations. - Potential overspending by consumers leading to principal loss, which Sezzle mitigates through underwriting controls. - Competitive landscape challenges in the buy now pay later industry.

Q: Could you talk a little bit about what you’ve learned so far with the bank partner and how the new On-Demand product is going?

A: With the WebBank partnership, it has simplified the business and boosted profitability by standardizing procedures nationally. On-Demand is seeing increased activations with a 30% higher rate of user activation into monetized programs.

Q: Can you just clarify, so the full year 2024 guide, is this a GAAP number, $12.05, and your adjusted number is $9.80?

A: The adjustment is related to discrete tax items, specifically a valuation allowance against deferred tax asset that was released, making the adjusted number more reflective.

Q: Is there any tie to a weaker consumer that is maybe helping the business where it looks like people who are existing customers of yours are using it more frequently by quite a substantial rate above what you saw a year ago?

A: It's not a sign of a weak consumer; instead, it's due to better products and stickiness, with no deterioration in credit risk for core customers.

Q: Can you give us a perspective on how much of your UMS is from monthly subscribers and how much is from the occasional user?

A: Revenue streams breakdown is in the 10-Q, and while UMS sources aren't externally disclosed, there's a proxy in frequency numbers showing more orders from subscribers compared to nonsubscribers.